The Big Reset

As the curtain drops on the first decade of the 21st century, the media has rushed to try to catch history in a jar. Were the "naughty aughties" (Russell Gold in The Wall Street Journal) the "decade from hell" (Time), the "flimflam decade," or the "Big Zero" (The New York Times' Frank Rich and Paul Krugman, respectively)?

Shifting the focus specifically to pharma, we might wonder if it was both the best of times and the worst of times. The industry began the decade with revenue growth close to 10 percent, and ends it with a growth rate of barely 1 percent, according to IMS Health. On the other side of the ledger, pharma's much-maligned R&D machine produced major medical breakthroughs, including the triple-drug cocktail for the global HIV epidemic and the first vaccine for cancer.

Looking ahead, the new year promises no respite from the radical disruptions pharma faces, according to the experts we spoke with. If there's one common theme, it's that market forces are mostly out of pharma's control, so the best M.O. is to go with the flow—or risk not going at all. "Globalization, healthcare reform, enabling technology, rising consumerism, and the focus on health outcomes rather than products are changing the incentives in the healthcare ecosystem," says Ernst & Young's Global Pharma Head, Carolyn Buck Luce. "And when you change the incentives, you change the system. Old players leave, new ones come in."

—Carolyn Buck Luce, Ernst & Young

With the uncertainty of healthcare reform receding and the economy no longer in free fall, "2010 has a more positive outlook than a year ago," says Murray Aitken, senior vice president of IMS Health. "Above all, there is a more realistic commitment among pharma leaders to ensure that their businesses are sustainable beyond the patent cliff. We are emerging from a period of denial, when hope was the only strategy."

But not everyone is on board with this new realism. "Turning to emerging markets and buying very expensive biotech revenue streams are not strategies for long term success," says Michael Russo, partner at the Bruckner Group. "There needs to be a fundamental reset of the industry."

Over the past decade, pharma has been colonized by venture capitalists who invested in "revolutionary technology," along with advertising agencies that preached consumerism and selling Nexium Part 5, according to Russo. "The future has arrived, but the revolution has not," he notes. "We need to wrestle the industry back to making science central."

Is it possible to go back to your roots and look to the future at the same time? That and more will be required of pharma CEOs in the next decade.